Tenet to Pay $900 Million to Settle U.S. Allegations

Tenet Healthcare Corp.'s $900-million settlement Thursday with the federal government over allegations that it bilked Medicare clears the troubled hospital company of most of its legal woes.

But Tenet faces a stagnant hospital market that is struggling with declining admissions and increased competition.

The settlement is the second-largest of its kind, after HCA Inc.'s $1.7-billion accord in 2000. Tenet also announced that it would close or sell 11 of its 68 hospitals, including Alvarado Hospital Medical Center in San Diego, whose sale it had previously disclosed.

The Dallas-based company, which lost more than $3 billion in the last three years, hopes the restructuring and resolution of its legal problems will lead it to profitability.

But that won't be easy. Last year U.S. hospitals admitted about 37 million patients, a figure that hasn't changed much in nearly five years, according to the American Hospital Assn. And those patients aren't staying as long -- a little less than seven days on average compared with nearly eight days a decade ago.

The reasons for the sluggish growth are varied, experts say. Improvements in medical technology mean patients recover faster and don't need to stay in a hospital as long, if at all.

The industry also faces growing competition from smaller and cheaper care providers. Ambulatory clinics, which specialize in minor surgeries, and urgent-care facilities, for example, have siphoned patients away from hospitals over the years. Because they are not as heavily equipped or staffed as hospitals, clinics can charge lower prices.

Mandated staffing levels and a shortage of nurses have driven up costs as well. And hospitals are the healthcare providers of last resort for the uninsured and underinsured.

Last year, hospitals provided $6.6 billion in uncompensated care to the uninsured and underinsured, said Jan Emerson, a spokeswoman with the California Hospital Assn.

"It is not going to be easy from here," said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Conn. Still, "in 2003, some people thought this company may not survive."

That's when the Justice Department filed the first of three lawsuits against Tenet, then based in Santa Barbara, that were settled Thursday. The nation's second-largest hospital operator, with 16 facilities in California, was accused of defrauding Medicare, the federally funded healthcare program for seniors and disabled people, by overbilling and paying illegal kickbacks to doctors in exchange for referrals.

The company also faces ongoing probes by the Securities and Exchange Commission and the Internal Revenue Service regarding its financial disclosures related to Medicare payments.

In Thursday's settlement with the Justice Department, Tenet admitted to no illegal activities, but Chief Executive Trevor Fetter acknowledged in a written statement that the company had made "mistakes."

"The organization was humbled because of what happened," he said.

Tenet agreed to pay $725 million plus interest over the next four years and to forgo an additional $175 million in healthcare payments it had expected from federal agencies.

The amount is second only to what HCA, the nation's largest hospital company, paid in fines and settlements over three years ended in 2003. Unlike Tenet, Nashville-based HCA pleaded guilty to some fraud charges and settled others. It had been accused of filing false claims for reimbursements from Medicare and Medicaid, the federal healthcare program for the poor.

Tenet said it would sell or close 10 hospitals in Louisiana, Pennsylvania and Florida. San Diego's Alvarado Hospital Medical Center has been up for sale since May, when Tenet settled a federal case involving allegations of illegal kickbacks to doctors. The company had agreed to pay $21 million in that case.